AT&T Surprises The Industry

AT&T has been slammed by its iPhone customers for dropouts and overall poor performance of its 3G network. Combined with attack ads from Verizon and media bashing from analysts, most thought that Apple would cancel their AT&T exclusivity contract for the iPhone, and hand over their new iPad tablet (a hand-held computer device touting a 9.7 inch screen, weighing 1.5 pounds and supporting 140,000 applications) to Verizon, when Apple held their iPad launch event this week.

Most were wrong on both fronts. Apple praised AT&T as a great partner, despite the technical problems, and will continue iPhone exclusivity with AT&T. The new iPad will also go to AT&T as the sole carrier. This is clearly a coup for the company, which will certainly take customers away from Verizon. Although most people are shocked that Verizon was not included, Apple executives realized that the grass is not always greener. No one anticipated the incredible data usage demands from the iPhone, and I do not believe that Verizon could have done a better job, despite their claim to having a superior network. AT&T has vowed to improve their service and will invest billions in the upcoming months to backup their promise.

Looking at the financial side, both companies have seen decreases in their share price by over 10% since the beginning of the year. This is due to price cutting, declining wireline revenues and the major indices contracting by more than 6%. However, Q4 revenues and cash flows reported this week were strong from both firms. Over 2 million wireless customers were added by each company, respectively. AT&T showed an increase in earnings of over 25%, and both companies have current dividends topping 6.5%. Notwithstanding the positive financial points, it is clear that the Telecoms have lost favor with Wall Street. With pummeled stock prices and high yields, maybe it is time for the institutions and hedge funds to realize investment value in these stable cash-cow giants.

C. Cohn